Saturday, June 11, 2016

Beliefonomics & Shale

You can have your preconceived notions on whether fracking is evil or a godsend.  But even in the face of daunting low oil prices, the American Capitalist rises to the task of overcoming what seem to be almost insurmountable odds.  My hats off to these guys.


Beliefonomics is the most dismal element of the dismal science. Practitioners advance outlooks based upon conjecture, fantasy and hope, qualifying themselves on the basis of whom they know, not what they know; exhibit an abundance of attitude, false modesty, and condescension, but a dearth of facts; commonly support their assertions with a discussion ending “because”; and do not respond well to challenges.

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And what are producers saying in their most recent Investor Presentations…?

• Chesapeake states its Haynesville shale drilling and completion costs have decline 23% since 2015, and that longer laterals have resulted a 63% increase in 160-day cumulative well production

• In the Eagle Ford, Chesapeake projects a 25% to 50% rate of return from its 2016 development program and states, “current returns… at $45/bbl oil out compete 2014 at $80/bb oil” •Comstock, also a Haynesville producer, indicates that “new wells have 24% to 48% rates of return at natural gas prices of $2.00 to $2.50/mcf”

• Whiting Petroleum claims a “55% IRR at $50/bbl NYMEX” on its Bakken production

• Pioneer Resources, a large Permian producer, is realizing 10% to 35% improvements in well productivity due to innovations in completion technologies

• EOG Resources reports a 29% year-on-year decline in overall lease operating expenses. It also states that well completion costs, since 2014, have declined 42% in the Permian, 15% in the Eagle Ford, and 30% in the Bakken. Finally and regarding drilling, spud to TD times have declined 43% to 19 days in the Permian since 2014, 45% to 8 days since 2012 in the Eagle Ford, and 59% to 9 days in the Bakken, also since 2012.

• EOG also reports its after-tax rate of return at $40/bbl oil is between 15% and 30% in the Bakken core, Permian-Delaware, and Eagle Ford.

• EOG states it has an inventory of more than 12,000 drilling locations

• Anadarko Petroleum indicates that DJ-Niobrara and Permian well costs have been halved since 2013 and 2014, respectively.

• Devon indicates: its drilling and completion costs fell 40%, and its lease operating expenses have declined 25% since 2014; that, at $50/bbl oil and $2.50/MMBtu natural gas, it generates internal rates of returns exceeding 20% in the Rockies, Eagle Ford, Oklahoma Stack and Permian; and that it has more than 13,000 remaining drilling locations

• Cabot Oil & Gas says its drill times, since 2014, declined from 16.9 days 9.4 days in the Marcellus, and from 15 to 8 days in the Eagle Ford, supporting a halving of its drilling costs.

• Range Resources indicates that at current natural gas strip prices, it can drill and realize rates of returns across the Marcellus ranging from 20% to 40%.

If you want to “believe” in something; believe in that.
Don't ask me what a spud is, other than a potato...

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